Bill Would Subsidize CHP With Credits, Similar to Ones Used in Solar Sector

After Sandy, CHP could prove a smart bet for boosting reliability of power grid.

The Legislature is trying to jump-start the state’s efforts to develop cleaner and more efficient power plants by setting up a system that would reward developers of those facilities with incentives similar to the ones now in place for New Jersey’s solar sector.

The bill (A-1384) up for consideration in the Assembly Telecommunications and Utilities Committee tomorrow, is designed to encourage the building of combined heat and power plants, a goal embraced by both the Christie administration and state lawmakers.

In the wake of Hurricane Sandy, when many critical facilities, including hospitals and sewage treatment plants lost power, policymakers are taking a new look at CHP as one way to improve the reliability of the electric grid.

CHP plants produce electricity and heat simultaneously, a technology that can mean big savings on utility bills for facilities that use a lot of thermal energy. The state’s Energy Master Plan calls for 1,500 megawatts of CHP by 2020, a target not likely to be met, according to some industry observers.

New CHP power plants have been derailed by the diversion of funds set aside by lawmakers to promote their development. Instead, the Christie administration and Democratic-controlled Legislature appropriated the money -- $164 million -- to help plug a hole in the state budget.

Without financial incentives, CHP advocates say, it is unlikely that many new plants will be built, largely due to the volatility of energy prices. The bill also underscores how rarely energy projects move forward without any subisides from either the state or federal government -- even in states that deregulated the sector in the hope of promoting more competition.

To address that issue, Assemblyman Upendra Chivukula (D-Somerset), the chairman of the committee and sponsor of the bill, is proposing that power suppliers must purchase a certain amount of the electricity they supply to customers each year from CHP plants. By the 12th year of the program, a minimum of 5 percent of New Jersey’s electricity would have to come from CHP facilities, according to the bill.

Chivukula’s bill would set up a system similar to the one now used to spur development in the solar sector. CHP plants would be granted financial credits for the power they produce, which would have to be purchased by power suppliers. If not enough credits are available, the suppliers would have to make a compliance payment to the state.

Another similarity to the solar sector: the cost of the credits would be ultimately borne by utility customers, who are projected to pay as much as $5 billion to subsidize the development of solar and wind energy in New Jersey over the next two decades, according to the state Division of Rate Counsel.

Nonetheless, some critics of those subsidies view Chivukula’s bill favorably.

“Finally, an energy bill that will help the state,’’ said Hal Bozarth, executive director of the Chemistry Industry Council of New Jersey, who has been one of the loudest critics of clean-energy subsidies.

“We need to bend the curve downward, not upward, like we have done with solar and wind,’’ Bozarth said. “This is real electricity.’’

Not only will CHP produce cheaper power for institutions that deploy the technology, advocates also say it could help lower costs for New Jersey consumers who pay some of the highest electric bills in the nation because of congestion on the power grid.

“It has the potential to support CHP in a long-term sense,’’ said Gearoid Foley, director of the Mid-Atlantic Clean Energy Application Center for the U.S. Department of Energy and a strong proponent of the technology. He said a similar system to the one proposed by Chivukula has been in place in Massachusetts for a few years.

Jeff Tittel, director of the New Jersey Sierra Club, said he had problems with the bill. He argued that CHP should pay for itself, since the people who install it reap energy savings over many years.

“It’s not the equivalent of renewable energy because you are burning something,’’ Tittel said. “These type of incentives should go to non-carbon solutions to producing electricity.’’